Coronavirus – Job Retention Scheme Version 1 (until 30 June 2020)
Employers can make a claim for a proportion of employees monthly salary costs in respect of employees who are not working as a result of the impact of the coronavirus (furloughed employees). Not all employees of the business need to be furloughed. The minimum length of time an employee can be furloughed is 3 weeks.
The scheme, which commenced on 1 March 2020, was extended until 30 June 2020. From 1 July 2020 a new version of the scheme commenced, the details of which are on a separate blog.
The maximum amount which can be claimed per employee is 80% of employees ‘normal’ pay capped at £2,500 per month. The grant received by the employer is taxable income for the employer. In addition to the above amount, employers NIC and employers pension costs (see below) can be included in the grant claim.
If an employee undertakes any work for the employer, then the employer is not entitled to the grant from HMRC as the employee is not furloughed.
As regards to furloughed directors of companies, HMRC has issued the following guidance – ‘ Where furloughed directors need to carry out particular duties to fulfil statutory obligations they owe to their company, they may do so provided they do not more (than that), for instance they should not do work of any kind they would carry out in normal circumstances to generate commercial revenue…’
Employees are allowed to undertake training whilst being furloughed.
The claim for the grant can be backdated for those employees who have already been furloughed. Claims can be made in such cases from the date that the employee became furloughed, but cannot be backdated prior to 1 March 2020.
Claims can be made for employees who have been made redundant since 28 February 2020, provided the individuals are re-employed by the employer making the claim.
Employer’s pension costs are included in the grant claim, but the amount claimed is restricted to the minimum pension auto enrolment rate of 3% of pensionable salary.
Gross pay excludes fees, commissions and bonuses and for those having a standard monthly salary, is the amount of their normal monthly pay as at 28 February 2020.
For those having variable pay it is the higher of:
- The salary for the same month last year and
- Average monthly pay for the 2019/20 tax year.
For those employed less than 12 months, the gross pay is the average monthly salary since they were employed by their current employer.
The employer needs to designate workers as furloughed workers and advise those employees that their status has changed. The employer should also ensure that any reduction in salary paid is not in breach of the employee’s employment contracts.
A claim has to be made by the employer on an online portal to HMRC.
Employees who are furloughed for whom a grant is payable to their employer, must receive at least 80% of their normal salary. As such employees are not undertaking any work, National Living Wage / National Living Wage rules do not apply.
Holiday pay continues to accrue for employees who are furloughed.
For the owners of small limited companies who receive most of their income as dividends, any support under this scheme, will be restricted to a percentage of the small monthly salary paid. Dividends are not covered by this scheme.